The Downtime Spiral: What downtime really means for your organization?

Business owners and managers are all too aware of the costs their businesses incur. The ongoing struggle involves how to reduce costs and increase the quality of products and services delivered to customers. The first rule in Finance 101 says that the amount of money coming in be higher than the amount going out. If not, action must be taken to close the gap.

Most agree costs are easier to control than sales. The kneejerk reaction is to cut people during tough times, something we saw during the 2008 financial crash. What happens when IT staff or consultants are cut from payroll? Referring to my previous blog post, the default decision is get the “most computer literate” person in the office to wear the IT hat. Without the skills, this person usually solves problems with bandage solutions, instead of addressing a bigger issue. While problems may begin in one department, they spread to other departments quickly. Soon, rolling IT ‘blackouts’ become the norm and production decreases or stops because bottlenecks mean employees get little done. If the problem continues, workplace morale decreases and stress and anxiety rises. Customer service and sales people often have a hard time keeping prospects and existing customers happy. Furthermore, delays mean employees blame others as the workplace culture increasingly becomes toxic. This downward spiral often leads to more layoffs.

What is the cost of downtime or more aptly when a business stops? For small and medium sized businesses time is the most valuable commodity.

Different factors cause downtime. According to an article from Biztech Magazine, “the average midsize company suffers 16 to 20 hours of network, system or application downtime per year, according to IDC, at an average revenue loss of $70,000 per downtime hour”. By industry, the revenue loss per hour is $9,997,500 for finance, $397,500 for retail, $157,500 for healthcare and $59,930 for manufacturing (Source: DC’s Business Value Research, 2009). This is staggering!

A study by CA Technologies in 2011 found that more than 37 million man-hours was lost across all organisations in Europe due to downtime in general. This equates to an average of 552 hours per company, per year.

Cyber attacks involving network security is the most costly to businesses. A 2010 report by McAfee says that the cumulative costs of downtime from attacks are $6.3 million per day. The cost of a server outage and downtime range from $500 to $1,500 per hour, depending on the size of the business and its dependency on the server. The hidden costs of server downtime are damage to a company’s reputation, lost sales, labour cost and more employee stress and anxiety.

How to Calculate Downtime?

Not surprisingly, managers and business owners must learn about downtime costs in their respective industries and company. Several tools that calculate downtime, exist on the Internet, three of which are here, here and here. Of course, these are meant only as estimates.

This tool calculates the annual cost of downtime at $52,000 (approximately $4,300 per month) for a 10-person company with an average pay of $40 per hour. Each employee experiences 30 minutes of total downtime per 8-hour day. Please keep in mind this calculation only takes into account lost employee productivity. The number is higher when other costs are added like hardware, labour rates, lost revenue and company reputation.

In my next instalment of the series, I will review the same causes of downtime outlined above and how managed services agreements save a company time and money.